Société Générale as French and British banks withdraw from Africa

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Just a few years ago, British and French banks were touting Africa as a growth market and a place to hone their sustainability credentials. However, several companies have since sold subsidiaries across the continent. This may seem like a bad omen for a continent with some of the world's most pressing sustainable development challenges. However, there remains scope for new pan-African banking groups that could boost financial inclusion and domestic investment. Below, we will report whether or not this will happen.

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sustainable development

What does the European banks' ruthless response mean for Africa?

Societe Generale has long touted its holdings across Africa as evidence of its commitment to sustainable growth.

In his 2018 post “Africa — Why We Believe,” then-CEO Frédéric Oudea cited a new mobile banking service and an “e-wallet” called YUP to encourage Africans to bank. He said it would increase access. Until late 2021, the third-largest French bank by market capitalization was touting in the FT newspaper its loans to climate-resilient African cities.

But YUP will shut down in 2022, and last year SocGen, which operated in more than a dozen African countries, signed a deal to dispose of its subsidiaries in the Republic of Congo, Equatorial Guinea, Chad and Mauritania. Earlier this month, Africa Intelligence reported that SocGen had asked investment bank Lazard to find African buyers for its subsidiaries in Tunisia, Cameroon and Ghana (SocGen declined to comment).

SocGen's exit is partly related to the bank's specific conditions as it seeks to focus on its core markets after sluggish profits. But it is also part of a broader trend in which French and British banks, whose growth had previously been driven by demographic trends and digitalization, are retreating from Africa.

In 2022, Barclays sold its last controlling stake in South Africa-based Absa Group, giving it a presence in 12 African countries. London-listed Standard Chartered has announced that it will leave five African countries in 2022. After selling its Moroccan subsidiary in 2022 and its South African subsidiary in 2023, Credit Agricole currently has a presence in only two African countries: Algeria and Egypt. BNP Paribas, France's largest bank, closed its corporate and investment banking operations in South Africa last month. .

Various factors explain the departure. Jamal El Mellali and Ramy Habibi Alaoui, analysts covering African banking at Fitch Ratings, said some European banks are seeing “synergies” between Africa and other parts of their business. Some banks have decided that African banks pose higher risks and lower returns, he said. The subsidiary did not justify its continued existence.

Bank of France's move comes as President Emmanuel Macron's government reconsiders its strategic presence on the continent amid security and political challenges, and as Paris faces increasing competition for influence from Russia and China. There is also a geopolitical dimension to the withdrawal.

Alex Vines, director of the Africa program at Chatham House, a UK-based think tank, said France was going through a “period of deep introspection” about its presence in the region, resulting in “a Paris Knowledge is becoming diluted.” problem”.

However, the withdrawal of international banks may not necessarily bode well for Africa's sustainable development goals.

Good side for Africa

Two West African banks have been quick to take advantage of this exit. Burkina Faso's Collis Group, founded in 2008, and Guinea's Vista Group, founded in 2016, both recently acquired subsidiaries from French banks, including SocGen. Both emphasize work with small and medium-sized businesses, which are often overlooked.

“Although it is a large banking group that is leaving, we will continue to be colleagues and will continue to work together on projects,” Marcial Goe Acue, director general of Vista Bank Guinea, told me. “But with them leaving, it's not exactly empty space,” he said. “It’s up to us to permanently finance Africa’s economies.”

The depth and resilience of our capital markets and financial services sector is critical to development. From lending to women-owned businesses to financing infrastructure, local banks can play an important role in reducing poverty and supporting sustainable growth. Vista Bank Guinea was experimenting with a “concept store” and incubator for local businesses, Go Akueh said.

Vista and Coris don't have the size of Africa's biggest banks (South Africa-based Standard Bank Group or National Bank of Egypt) in terms of assets, but they are growing rapidly.

Vista has a presence in Guinea, Gambia, Sierra Leone and Burkina Faso, and once the acquisition agreed last year is completed, the bank will have a presence in 16 African countries, according to Fitch. Coris currently operates in 10 African countries.

The growth of pan-African banking groups such as Vista and Coris could boost financial inclusion, El-Mehrali said. He said French and British banks have stricter capital requirements than their African counterparts and have higher costs of capital for day-to-day operations such as compliance and IT.

“French banks have a very conservative risk appetite, so their African subsidiaries tend to shy away from small and medium-sized enterprises and the lower echelons of the retail sector,” El Melari added. “Their lending standards are adapted to some extent to the local banking sector, but… you can't just remove the DNA.”

International sales are not just for West African entrants. Société Générale Maroc has been acquired by Saham Group, a private equity conglomerate based in Morocco. And former European subsidiaries are now buying each other out, with Absa Group just acquiring an HSBC subsidiary in Mauritius.

Cross-border payment disruption

Of course, simply changing hands to African owners does not guarantee better governance for ordinary Africans. It is worth asking why Moroccan banks, which have a large presence in French-speaking West Africa, have not been more active in acquiring these subsidiaries.

One risk in the restructuring is that it disrupts relationships with correspondent banks that facilitate cross-border payments. French banks with subsidiaries in Africa typically have foreign currency lines dedicated to trade finance, and their withdrawal could disrupt trade finance and remittance payments.

Asked what new opportunities could emerge from the ongoing restructuring in Africa's banking sector, Goh Akueh pointed to the Pan-African Payment System, a continent-wide digital payments system using local currencies. , and other initiatives aimed at growing intra-African banking. Trade remains weak, he said.

“Pan-African integration is where Vista can really benefit from growth as we enter an increasingly uncertain global environment,” he said.

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